By Simon Miller
Chief executive of the Financial Services Authority (FSA) Hector Sants has said that the regulator will move away from a reactionary basis when the ‘twin peaks’ comes on line from 2 April 2012.
The move sees banks, building societies, insurers and major investment firms having two groups of supervisors, one focusing on prudential and one focusing on conduct so that all parties are ready for the switch to two regulators in 2013.
Sants emphasised that the change will embed the “forward-looking, judgement-based approach “and accelerate the move away from the old reactive style of regulation. He stressed that the changes must not just be structural but must involve behavioural shifts from both supervisors and firms.
Speaking at a British bankers' Association meeting today (06.02.2012)
Sants said: “The move to twin peaks is an opportunity to drive home and further embed the move to forward-looking, proactive, judgement-based supervision. It is an opportunity that must not be missed. We must crystallise the change from the old style reactive approach to the new style proactive approach.”
He added: ““The most important change that will occur at twin peaks, in my judgement, is not the introduction of a new operational framework, but the opportunity to accelerate the process of behavioural change that the FSA embarked on when we began the reform of the supervisory process in the spring of 2008.”
With finger-pointing at the financial sector still high on the political agenda, Sants said that firms would be expected to recognise the importance of aligning their goals with those of the supervisors and society as a whole and show show a greater willingness to proactively comply with supervisory judgements.
“We are not asking firms to forgo their right to challenge their supervisor if their decisions have not been properly made. But we are suggesting that dragging their feet in complying with requests when it is obvious to all that the outcome is in the best interest of society as a whole is not a behaviour which should survive in the new world,” he said.
Sants concluded: “It is really important that we must use this opportunity to accelerate the behavioural and cultural change needed in both regulators and firms. The new world of judgement-based regulation needs to be embraced by us all.”
The key characteristics of the model include:
• Two independent groups of supervisors for banks, building societies, insurers and major investment firms, covering prudential and conduct;
• Supervisors making their own, separate, set of regulatory judgements against different objectives;
• ‘Independent but coordinated regulation’ designed to allow internal coordination between both conduct and prudential supervisors to maximise the exchange of information relevant to their individual objectives, but with supervisors still acting separately when engaging with firms; and
• Retaining the principle of seeking to ensure that regulatory data is only collected once.